Sri Seshadri
3/19/2020
| Variables | Description |
|---|---|
| YearMonth | 1992 Jan to 2019 Dec |
| RecessionYears | 1, during the years 2001,2008 and 2009; 0 otherwise |
| RecessionCorrection | 1, during the years 2001,2008,2009 and 2015-16;0 otherwise |
| Sales | Sales in millions (USD) |
| Sales_in_trillions | Sales in trillions (USD) |
Models trained with 2010-14 data would not learn the recession effect.
What if the training data was to include 2015 data and the trained models be validated against 2016-19 data?
Even if the models learnt the behavior at recession periods …
How do we know future recession years in the forecast horizon?
Use Recession/Correction years as indicatior variables in each of the soluton strategy. Ignore great-recession data for model training.
Models trained with data from 1999-2003 when applied to 2015 data without retraining sufferes level/intercept mis-specification. The mis-specification is handled by adding the difference of sales in Dec 2003 and Dec 2014 to the forecast.
Models trained with data from 1999-2003 when applied to 2015 data without retraining sufferes level/intercept mis-specification. The mis-specification is handled by adding the difference of sales in Dec 2003 and Dec 2014 to the forecast.
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| .model | .type | ME | RMSE | MAE | MPE | MAPE | MASE | ACF1 |
|---|---|---|---|---|---|---|---|---|
| LMArima | Test | -0.034 | 0.071 | 0.060 | -2.792 | 4.533 | 1.036 | 0.655 |
| composite | Test | -0.105 | 0.112 | 0.105 | -7.737 | 7.737 | 1.818 | 0.467 |
| tslm | Test | -0.164 | 0.173 | 0.164 | -12.332 | 12.332 | 2.846 | 0.724 |
| .model | .type | ME | RMSE | MAE | MPE | MAPE | MASE | ACF1 |
|---|---|---|---|---|---|---|---|---|
| composite | Test | -0.029 | 0.054 | 0.042 | -2.092 | 3.041 | 0.736 | 0.506 |
| LMArima | Test | 0.182 | 0.214 | 0.184 | 12.764 | 12.942 | 3.233 | 0.837 |
| tslm | Test | -0.242 | 0.252 | 0.242 | -17.384 | 17.384 | 4.244 | 0.788 |
GDP output gap is the difference between GDP output and potential. Positive output gap indicates overheated market.
Educated guess that thre consecutive years of overheated market results in a recession the following year
Assumes 2020 is a recssion year
Above methods simulate all possible recession scenarios (assuming utmost 1 year of recession is possible)
The chance of sales surpassing 1.8 trillion US dollars is 44%
The chance of sales surpassing 1.8 trillion US dollars is 40%